NRG Energy Inc. reached an agreement in federal bankruptcy court, teeing up GenOn Energy Inc. for the elimination of $1.75 billion in debt from its balance sheet and positioning the company and its affiliates to emerge as stand-alone new entities.
On Dec. 12, the U.S. Bankruptcy Court for the Southern District of Texas in Houston approved and confirmed GenOn's amended Chapter 11 reorganization plan, which would give GenOn, GenOn Americas Generation and certain direct and indirectly owned subsidiaries relief from at least $1.75 billion in debt as well as the provision of capital necessary to return funds back to GenOn creditors, according to filings made Dec. 18. The plan's confirmation likely entails a slate of third-party asset transactions called for in the plan, pointing to the likely monetization of the GenOn enterprise, or certain segments within it, through outright sales or new equity issuances, wherein the proceeds would be distributed back to creditors.
The restructuring process, which began June 14, appears to be nearing a conclusion nearly six months after it began on the back of a push by NRG to rationalize its own holdings in a separate transformation process. In late October, GenOn extended the restructuring period into the third quarter of 2018, contingent on receiving certain regulatory approvals.
NRG entered into a settlement agreement Dec. 14 that will be implemented in two phases, according to the filing. The settlement previews a consensual "resolution of substantial intercompany claims" between NRG and GenOn during the first phase of the plan, as well as settlements of various costs and liabilities between the two. As part of the settlement payment, NRG will pay GenOn roughly $261.3 million in cash, which may be offset by $125 million in NRG claims against GenOn per the parties' revolving credit facility.
As part of the settlement, NRG entered into a transition services agreement, which stipulates that NRG will continue its shared services agreement with GenOn until Sept. 30, 2018, and provide compensation for certain financial advisory and regulatory services in the lead-up to a potential transfer of ownership of GenOn where shared services from NRG are no longer needed. In the event that the shared services agreement is concluded before Sept. 30, 2018, NRG will cooperate with new third-party buyers on transition services and award GenOn a credit of $1 million each month for which the sale occurred before Sept. 30, 2018.
Upon sanctification of the plan, GenOn is authorized to receive a one-time credit of about $27.8 million from NRG toward the ultimate payment of its shared services balance. Following confirmation of the plan, the agreement states that GenOn will make a one-time, $15 million payment to NRG for the purchase option of Canal 3 (CT), where it has until Jan. 22, 2018, to execute on the sale. If GenOn rejects the sale, the $15 million option payment will be put toward the roughly $27.8 million shared services credit, according to the filing.
If GenOn does not reject the purchase of Canal 3, it has until March 31, 2018, to acquire the facilities for a price equal to NRG's development costs in addition to a 10.5% return on such costs and a development fee less $15 million, according to the settlement. The agreement also stipulates that NRG will indemnify GenOn, its affiliates and noteholders against any historical pension liabilities.
As for GenOn Mid Atlantic, the court's approval would entail the settlement of all pending litigation and objections to the reorganization plan. GenOn will also provide a $55 million, one-year senior secured bridge facility to GenMA, with NRG and GenOn providing an additional $57.5 million in new credit as well. GenOn will keep a pre-petition transfer of $125 million from GenMA as well as the proceeds of NRG's settlement payment.
GenOn and its affiliates reported consolidated total assets of about $4.01 billion and roughly $3.61 billion in consolidated liability, according to a Nov. 30 report cited in the filing.